ICE walks away from ISDA CDS committee role as agreement fails

LONDON, Oct 9 (IFR) - ICE Benchmark Administration will no longer take control of the committee that determines whether credit default swaps pay out after an agreement with ISDA failed at the end of last week.

IBA, a subsidiary of the InterContinental Exchange, was selected last December for the role of secretary to the credit determinations committees following a public tender that got underway in May 2016. IBA had been negotiating directly with the DCs on possible changes before taking over the administrative duties.

The transfer requires changes to DC rules, which must be passed by a super-majority vote comprising 12 out of the 15 buyside and sellside committee members. Some of those changes simply replace references to ISDA as secretary, but a final agreement could not be reached.

ISDA’s rolling term as DC secretary expires in April 2018 and the industry body will pursue other avenues to pass the role to a new entity before then.

“All parties are committed to the long-term viability of the credit derivatives market, and will work to ensure a smooth and orderly transition of DC secretary responsibilities,” said ISDA in a statement.

The breakdown of the agreement is the latest blow for an instrument that has been struggling to restore its credibility in the wake of the financial crisis. A string of surprise outcomes have left some CDS holders questioning the independence of the determinations process, where voting members represent the largest CDS participants.

While the DC secretary does not have a voting role on the committee of five buyside and 10 sellside firms, the transfer of administrative duties came as part of a wider plan to strengthen the independence of the body that decides whether an issuer is in default. That included a new requirement for voting firms to confirm they have written policies in place for identifying and managing conflicts of interest.

“The appointment of an independent, specialist organisation to act as DC secretary is a natural next step in the evolution of the process, and will ensure it continues to align with rapidly evolving governance standards,” said ISDA in its statement.

IBA was created in 2013. The unit won a tender to take over the administration of Libor in 2014 and is now responsible for a range of financial benchmarks including LBMA gold and the ICE swap rate (formerly ISDA Fix).

A spokesperson at ICE declined to comment. (Reporting by Helen Bartholomew; Editing by Christopher Spink)